Chief executive Antony Jenkins says lower pay would have meant clients and
employees would have been less likely to use Barclays

Barclays chief executive Antony Jenkins says he was forced to increase bonus payments to senior executives after hundreds of key staff left the investment bank in America and he feared a “death spiral” could grip the organisation.

Revealing the reasons behind the controversial decision to increase bonuses by £200m in 2013 despite profits falling at Barclays, Mr Jenkins said that he had to act or the investment division would suffer.

It is thought that as many as 700 staff left the American investment bank, with the “attrition” rate for resignations among senior directors almost doubling from 5pc a year to nearly 10pc after Barclays cut compensation in 2012.

In its annual report published on Wednesday, Barclays will reveal that the number of staff paid above £1m has risen, from 428 last year to between 475 and 500. About half are based in America and a quarter in the UK.

The number of people paid more than £5m has risen “by a few”, according to industry estimates.

Last year, Barclays announced it paid five people more than £5m, none of whom is based in the UK. It is thought that the number this year is still less than 10.

Describing the bonus increase as the “hardest decision” he had to take since becoming chief executive in 2012, Mr Jenkins said that he understood the widespread criticism the bank received but insisted it was “the right thing to do”.

He also said the bonus increase would be a “one-off” and, if profits continued to decline, an increase would not be repeated.

“We were faced with a very difficult decision for me personally as chief executive and for the board because we are absolutely committed to driving the level of compensation down in the investment bank,” Mr Jenkins told The Telegraph.

If the bank had not acted, Mr Jenkins argued it would have ended up in “a situation where the business begins to contract”.

“People are less attracted to come to you, both clients and employees,” he said.

“You get into something of a death spiral. Your brand deteriorates and you can move very quickly from being a first tier player to one in the second or third tier if you don’t protect the franchise.

“I understand completely the sentiment from shareholders and broader society that it feels unreasonable, but if we are going to be a world-class investment bank then we have deal with the compensation structure as best we can.”

Barclays faced criticism last month when it revealed that its bonus pool would rise from £2.2bn to £2.4bn even though profits fell across the group. Investment bank bonuses increased from £1.4bn to £1.6bn, with profits falling 37pc.

On Tuesday, the Governor of the Bank of England, Mark Carney, said that the Bank would be consulting on “clawbacks” so that executive remuneration already paid could be recalled if a bank faced financial difficulties.

The Bank will also consult on extending the period of deferral on bonuses. The Parliamentary Commission on Banking Standards has already suggested deferral periods of up to 10 years.

Mr Jenkins warned against overly long deferral periods as people would start ignoring them. At present Barclays defers 100pc of bonuses for managing directors in the investment bank for three years.

“There comes a point where the deferral levels for an individual become almost meaningless,” he said.

“If you say to somebody I am going to give you a bonus but you don’t get it for 10 years, that person is going to say: 'That is not worth anything to me and so it won’t change behaviour at all’.

“The deferral levels in the UK are among the highest in the world and that - again when you are competing for talent globally - makes it harder to attract the right talent.”

He said he still had a target to reduce the cost-to-income ratio of the bank to “the mid-30s” and create a better balance between remuneration and shareholder return.

The present cost-to-income ratio is 38pc, a number that has come down from 43pc in 2010.

“We believe it is right that the shareholders should have a bigger slice of the value that is created but we had to confront this issue of attrition,” Mr Jenkins said.

“I have made it clear to my colleagues in the investment bank that I see this as a one-year re-basing. If we continue to see a decline in profits in the investment bank they should not expect the same treatment this year.”

When the bonus pool was announced, the Trades Union Congress accused the bank of “sticking two fingers” up to the public, and the Institute of Directors said the bank was paying too much to its top staff and too little in shareholder returns.

Mr Jenkins said that bonuses were increased after it became clear that a move in 2012 to reduce pay in comparison to the bank’s main competitors had created problems.

“We tested the bottom of the market but we ended up going below the bottom quartile and paying uncompetitively,” he said.

“As a result of that we saw elevated levels of attrition, particularly in the United States.

“I have a lot of sympathy for people who are sitting there and feeling we’ve had five years of difficult economic times where I feel less economically secure.

“I understand that with these very big numbers, people feel very frustrated. But the truth is if we want to be a global investment bank with a large US business then we are going to have reconcile ourselves to pay high levels of compensation.”